Transactive Energy: Up in the Cloud with Virtual Power Plants

Much has been made of how changes in the way energy is bought, sold, and managed could spell trouble for utilities. This is also known as the much ballyhooed theory of the utility death spiral. Though some dinosaurs may indeed fail, the vast majority of utilities will still be around for quite some time. Those who will profit the most will be those who understand – sooner rather than later – how new technologies and new markets are transforming the electricity business.

The evolution of energy markets is accelerating in the direction of a greater reliance upon distributed energy resources (DER). The technologies and new frameworks necessary to manage this increasing two-way complexity remain unclear. Nevertheless, successful strategies are being deployed today all over the globe. One such strategy is a virtual power plant (VPP).

VPPs can be viewed as one manifestation of the concept of transactive energy, whereby new technologies such as demand response (DR), solar photovoltaic (PV) systems, advanced batteries, and electric vehicles (EVs) are transforming formerly passive consumers into active prosumers. At the beginning of this year, the GridWise Architecture Council defined transactive energy in the following way:

“Transactive energy refers to technologies managing the generation, consumption or flow of electric power within an electric power system through the use of economic or market-based constructs while considering electric reliability constraints. The term “transactive” comes from considering that decisions are made based on value. The decisions made may be analogous to or literally economic transactions.”

In essence, consumers become prosumers: active participants in delivering services tailored to their own needs and preferences that also serve the larger grid. Another way to describe the VPP vision of the future is the “energy cloud,” a term Navigant Research uses to describe how DER can be managed virtually via software that can deploy hardware in a dispersed network. In fact, a growing number of smart grid vendors – ranging from ABB to Schneider Electric -- now offer asset performance software for managing assets and operations, and smart grid analytics are now available as cloud-based software as a service (SaaS), the ultimate virtualization of energy services. In essence, the energy cloud business model revolves around the ability of anyone, anywhere being able to sell energy services into an open market, typically on a forward-looking basis, anticipating shifting demand and supply. If these committed resources come up short, another market allows for spot purchases to fill in the gaps. However, in order to make both of these markets work, rules need to be hammered out to allow these transactions to flow back and forth through a common carrier grid.

The keys to making it all work are new aggregation and optimization platforms. Perhaps the ultimate example of the energy cloud and/or transactive energy is the VPP, which represents an Internet of energy, tapping existing grid networks to tailor electricity supply and demand services for a customer, utility, or grid operator. VPPs maximize value for both the end user/asset owner and the distribution utility through software and IT innovations. Without any large-scale fundamental infrastructure upgrades, VPPs can stretch supplies from existing generators and utility demand reduction programs (and other forms of DER). They deliver greater value to the customer (e.g., lower costs and new revenue streams) while also creating benefits for the host distribution utility (e.g., avoidance of capital investments in grid infrastructure or peaking power plants), as well as the transmission grid operator (e.g., regulation ancillary services such as spinning reserves). As a result, VPPs deliver benefits to a broad array of energy market stakeholders.

The primary goal of a VPP is to achieve the greatest possible profit for asset owners, while at the same time maintaining the proper balance of the electricity grid. From the outside, the VPP looks like a single power production facility that publishes one schedule of operation and can be optimized from a single remote site. From the inside, the VPP can combine a rich diversity of independent resources into a network via sophisticated planning, scheduling, and bidding of DER-based services.

Both nanogrids and microgrids can be aggregated up into VPPs, showing how all of these emerging organizing structures are related and are dependent upon each other. Even more so, the VPP, however, is dependent upon regulatory changes in order for this nirvana of DER management to become reality.